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Wednesday, January 30, 2013

Italy's Economy Needs Soprano

By Grant de Graf

Italy continues to wrestle with its own set of economic woes, a victim of one of the latter casualties of the European economic crisis. Lackluster business performance, a build up of government debt and a deepening recession are leading to alarm bells that would jump start any troop of Rockettes at Radio City Music Hall in Manhattan, New York City.

The only thing is that we are in Italy and we need a performance that will raise eyebrows, but will not have everyone jumping out their seat.

Austerity, as with the rest of Europe, has not worked well for Italy. It has resulted in slower growth, a further increase in debt and business activity is grinding to a halt.

A lower influx of tax income has prompted Uncle Giuseppe (Italy's version of Uncle Sam) to peruse a tax hunt for businessmen who have sought to evade their respective tax burden. As if that would help. Uncle Giuseppe misses the point. If every Italian citizen had to pay their full liability in tax, it is unlikely to make a dent on the economic tragedy which has struck home. This is because the essence of the problem lies in the European blueprint for the Euro Zone, which has been imposed on Italy.

To start with, it is unrealistic to control monetary policy centrally, at the EU level and then expect fiscal policy to be implemented locally, by Italian politicians. The two instruments have very different agendas and an instruction from either source (monetary or fiscal) is likely to be heard by the other.

Add to that the yoke of the Euro currency and Italy's inability to export goods at competitive prices, which it could do under the system of the Italian lira, I would say things are about to get hot.

Imposed austerity has only aggravated Italy's cause (as with so many other member nations of the EU) and indeed it is less likely that the street will stomach another round of austerity measures. If the future path for Italy's politicians is at stake, which it is, politics may well be the catalyst which throws off the yoke of austerity and prompts the country's leaders to inform EU officials, with true local fanfare, to go fly their kites.

This may not be such a bad thing. Seemingly, it will prompt Europe into recognizing that it is time to make make some adjustments.